Symantec (SYMC) shares rose 22.1% in after-hours trading on July 2. The stock closed after-hours trading at $27.0 per share. The stock gained significant value. Reportedly, Broadcom (AVGO) is in advanced talks to acquire Symantec.
According to the Bloomberg report, “Broadcom could reach an agreement to buy the Mountain View, California-based company within weeks, said the people, who asked to not be identified because the matter isn’t public. No deal has been finalized and the talks could fall through, the people said.”
After rising more than 20.0%, Symantec is currently valued at $16.6 billion. In the last fiscal year, Symantec reported sales of $4.76 billion. According to analysts, Symantec’s sales will grow 1.1% YoY (year-over-year) to $4.81 billion in fiscal 2020—year ending in March.
So, how high will the deal be valued? Will Broadcom be comfortable paying almost 4x sales for the acquisition? Symantec is a slow growing company in a rapidly expanding cyber security market. Symantec has lost market share to tech giants including Palo Alto Networks and Fortinet in the Security Appliance segment.
Broadcom’s second-largest acquisition
The deal would be Broadcom’s second-largest acquisition. The company acquired CA Technologies for $18 billion in 2018. Although Symantec shares were trading higher due to the acquisition news, the stock burnt significant investor wealth recently. Symantec lost almost half of its market value between September 2017 and December 2018.
Symantec has been plagued by several issues including the abrupt resignation of its CEO, Greg Clark, in May. According to Bloomberg, Broadcom’s acquisition strategy focuses on companies that have market leadership and “sustainable market positions.”
While Symantec is a major player in the security appliance market, it’s losing its industry position and market share. Symantec’s sales have fallen from $4.97 billion in 2018 to $4.76 billion in 2019. The company also issued weak earnings guidance for the first quarter of fiscal 2020.
Although Symantec’s earnings in the fourth quarter were in line with the estimates, it fell by double digits YoY due to lower sales and increased spending in the Enterprise Security segment.
Broadcom stock fell more than 4.0% in after-hours trading. While the acquisition talks haven’t taken off yet, we’ll have to see how the company funds the acquisition. If Broadcom pays $16 billion to acquire Symantec, it will need to raise debt to fund the acquisition. Broadcom has a cash balance of $5.33 billion and total debt of $37.55 billion.